TCI: Transportation & Climate Initiative

Breaking News May 2021 - Gas Shortages Will be Caused by TCI

Representatives from energy and convenience store associations in New England gave a press conference on May 19.  In the wake of fuel shortages in the southeastern U.S. as a result of the Colonial Pipeline being hacked, they pointed out that such fuel shortages will occur, by design, throughout Southern New England over the next ten years, because TCI structures a 30% reduction in fuel sales in the region.  The representatives were Chris Herb, Connecticut Energy Marketers Association (CEMA); Brian Moran, New England Convenience Store and Energy Marketers Association NECSEMA); and Diane Quenelles, Energy Marketers Association of Rhode Island (EMARI).  Click on the buttons below for their press releases.
In related news, Jon Shaer, president of the New England Convenience Store and Energy Marketers Association wrote the following Op-Ed in the Providence Journal:
The presenters created a spreadsheet, upon which their presentations are based, that estimates the actual fuel shortages, for gasoline and diesel, in all the states signing the TCI Memorandum of Understanding (CT, MA, MD, RI & DC), over the initial TCI timeframe of 2022-2032.  The spreadsheet calculates a shortfall of some 5.1 billion gallons of fuel due to TCI, compared to government fuel consumption projections in the region without TCI. Not shown on the spreadsheet, but a logical consequence of fewer fuel sales, is the huge reduction on fuel tax revenue for state and federal governments.  The spreadsheet can be downloaded HERE.

Looking at the spreadsheet in detail, the first column shows the year. The next column shows fuel consumption in the region projected  by the federal Energy Information Administration (EIA) over the 10-year forecast period.  EIA projects a 6.31% decline in fuel sales due to higher CAFE standards and some adoption of electric vehicles (EVs).  Fuel consumption is expressed in metric tons of CO2 emitted by the fuel projected to be sold.  The next column shows TCI allowances that decline 30% over ten years.  Fuel suppliers have to purchase these allowances at quarterly auctions run by TCI in order to sell their fuel.  They will be heavily penalized for selling any fuel without having purchased the corresponding number of allowances.  This is an added cost to suppliers, like a tax, ordered by government mandate, and passed on to consumers.  The next column, marked 10% CCR, are reserves that can be released by TCI of additional allowances into auctions if the price rises above a certain threshold.  Though this is expected to occur only rarely, we add this additional 10% in full to regular allowances from the previous column in order to be as conservative as possible in showing all allowances hypothetically available for sale.  Next we subtract fuel sales projected by EIA from the amount allowed by TCI (with the 10% reserves) to show the over/under amount.  A positive number means there are more allowances than projected consumption.  A negative number indicates a shortfall where the allowances in a year are less than projected consumption.  We see the shortfall in percentages in the next column, where it starts small but rises quickly, so that by 2032, 22.5% less fuel is made available than is expected to be in demand.  Again, these numbers are all in metric tons of CO2.  But what we really want to see are the numbers of gallons of shortages.  So the next column converts metric tons of CO2 to pounds of CO2, and the next column converts this to gallons of fuel (here were are combining CO2 emissions from E10 gasoline with those of diesel diesel).  The shortfall in gallons is huge, totaling 5.1 billion gallons of fuel, cumulatively in the region over ten years.  The next column shows the real world implications of this fuel shortage in terms of number of cars that won't have any fuel to run on.  We assume a car uses 500 gallons of fuel per year, so that as can be seen in 2032, the billion gallons shortage of fuel in that year means that 2.28 million cars will not have enough fuel to run on.  [the last three columns on the sheet are just work calculations used to calculate the number of projected fuel use by EIA.]  These numbers are staggering, and of course are no surprise to the designers of TCI.  They don't want cars on the road, and the best way to do that is to choke off supply and leave people stranded.  But they're hoping the public doesn't realize this, which is why the presenters wanted to shine a light onto their scheme.
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Breaking News March 2021

The Georgetown Climate Center issued a new report in March 2021.  The Georgetown Climate Center produces modeling for TCI and is relied on by TCI for cost and emissions projections.  This report and backup material can be viewed HERE and HERE.

Notably, on the first page of its report, Georgetown says: "The TCI-P will set a cap on CO2 pollution from on-road transportation that declines by 30 percent from 2023 to 2032. In combination with low-carbon transportation investments, this is projected to reduce on-road emissions by at least 26 percent from participating jurisdictions from 2022 to 2032."

So far so good - a 26% reduction in emissions during the 10-year projection period based on reducing fuel consumption by 30% through lowering available allowances, i.e. gallons, that can be sold.  BUT, how does this compare with baseline emissions reductions over the same period without TCI? As explained under May Breaking News, the Energy Information Administration's own projections for gasoline and diesel consumption in New England is a decline of 7.29% for gasoline and 1.95% for diesel over the 10-year TCI timeframe. The disparity between what TCI says it will do (reducing fuel sales by 30%) and what a federal agency says will be likely (6.3% combined reduction in gas and diesel consumption), results in a disparity that will cause fuel shortages.  The EIA projections for a variety of energy uses, through 2050, can be found HERE.
Next we look at costs as outlined in the second document from Georgetown, Elements of Program Design, linked above.

Politicians trying to push TCI onto the residents of their states say it won't cost motorists more than 5-10 cents a gallon.  Well, they're not telling their constituents the whole truth. The way TCI works is that the price charged to gas and diesel suppliers fluctuates between a floor and ceiling.  These prices move based on the supply and demand of carbon allowances (see explanation further below) - hence the "trade" in cap and trade.  Theoretically, the ceiling is the upper limit the price can go to, while the floor is the lowest price it can fall to.  So in 2023, the floor is $6.50 per metric ton of CO2, and the ceiling is $12.00 per metric ton.  If you convert these to cents per gallon of gasoline, it works out to approximately a 5 cent floor and a 10 cent ceiling.  So yes, the cost paid by gas suppliers can range from 5-10 cents per gallon, which they'll pass on to consumers, in the first year of the program.

But the "cap" in cap and trade involves lowering the amount of emissions allowances every year that suppliers can purchase at auction.  Less supply, means the price of buying emission allowances goes up.  So these prices will continue to increase over the following ten years, so that by 2032, the ceiling is now $30.16 per metric ton of CO2 emissions and the floor is $12.30 per metric ton, i.e. about twice what they were in 2023.  This is shown on page 3 of Georgetown's Elements of Program Design paper.  These prices work out to a range of 10 - 26 cents per gallon.  You don't hear politicians talking about a 26 cents/gallon tax on fuel at all.  Moreover, nothing prohibits TCI from raising these floors and ceilings, and hence the price you pay a the pump, even higher than what Georgetown shows.  TCI is a multi-state entity outside the control of any single state.  It is an unelected body of environmental advocates not subject to the state laws of any of its participating states.  If they think raising the price of fuel will reduce global warming, nothing stops them from doing so.  See the example of Norway below.

And these are just the auction prices.  TCI has no mechanism to control prices sold on secondary markets by speculators.  If I'm a speculator who purchased, say, a million allowances, then in the event that a gas supplier needs allowances because he couldn't buy enough at auction, then he's got to come to me and has to buy allowances from me at any price I set, which could be well above auction prices.  After all, as a speculator, I'm buying allowances to make a profit.  So even in the first year, when the cap on auction prices is about 10 cents/gallon, they could be selling on the secondary market at twice that or more to people desperate for them.
Forbes
David Blackmon, Oct 24, 2019

A gasoline tax by any other name is still a tax on gasoline, isn’t it? That’s the question the governors of a dozen Northeastern states are attempting to avoid by implementing what is effectively a new gas tax on consumers via a regional “cap and trade” system.

The concept at hand in this regional gas tax scheme is similar to every other “cap and trade” system devised in any free economy, which involves the politicians trying to hide the tax from consumers by placing the point of taxation upstream, in this case with gasoline wholesalers. The Politico story linked above reveals that fact in the following paragraph:

"For the average consumer, the program will function fundamentally as a gas tax, as fuel wholesalers paying for emissions allowances pass on those costs. But policymakers prefer the term "cap-and-invest," and argue that the benefits of greening the transportation system will limit the cost impacts and keep energy dollars in the region."

How TCI Works
TCI is a form of carbon-taxing scheme devised by 12 northeastern states plus Washington DC designed to increase the cost of driving for consumers so that they use less gasoline and diesel, by switching to electric vehicles (EVs), mass transportation, bicycles and walking.

CAP AND TRADE
Simply put, TCI forces companies that sell gasoline to buy so-called carbon credits or permits at auction.  This is called a cap-and-trade system which is what California utilities and some industries (primarily the cement and oil/gas industries) are required to use.  As explained here, companies that emit greenhouse gases are required to buy permits based on the amount of such gases they emit.  There are only a limited number of these permits in any given year (i.e. the number of them is "capped"), and this cap is reduced every year.  So if the supply of the permits goes down, their price goes up.  Eventually, the price of these permits will be so expensive that the companies required to buy them will either stop emitting greenhouse gases so they don't have to buy them any more, or if this isn't possible, they'll go out of business.  Either way, the environmentalists win since greenhouse gases will no longer be emitted by these utilities and industries.

In the meantime, California is raking in billions of dollars from the sale of these credits.  As can be seen here, the state of California made over $739 million from auctions of permits just in the fourth quarter alone of 2019, and in fiscal year 2018-2019, it made over $3.2 billion.  This is based off an auction price that was $17 per metric ton of carbon dioxide as of the November 2019 auction.  It's easy to see why this fundraising scheme is so attractive to states in the northeast interested in TCI.  It's basically an open checkbook for them to spend on whatever they like.

Does cap and trade work?  According to this major study here, it has not improved air quality in California.  This is because the credits polluters are required to purchase are sold primarily by renewable energy providers such as wind or solar farms, most of which are out of state.  So the clean energy is being produced in states other than California, and the polluters in California can continue to pollute so long as they by these permits.  As this article here says, over half the regulated industries required to purchase permits actually increased emissions after the program started.

Cap & Trade and Social Justice
As the above article goes on to say:

"the neighborhoods that experienced increased emissions from regulated facilities nearby had higher proportions of people of color and low-income, less educated and non-English speaking residents. This is because those communities are more likely to have several regulated facilities located nearby. 'Good climate policy is good for environmental justice,' said Lara Cushing, the study’s lead author and an assistant professor of health education at San Francisco State. 'What we’ve seen from our study is that so far, California’s cap-and-trade program hasn’t really delivered on that potential.'  The impact on these communities could be severe and long-lasting, the authors said."

Environmental Justice (EJ) groups in New Jersey are also raising serious concerns, as explained in this article HERE.  Excerpts here:

A critical EJ concern with TCI is that it uses a framework, carbon-trading, that does not guarantee emissions reductions in the communities with the most pollution. Market mechanisms like TCI, that allow for diffuse emissions reductions across the region mean that pollution, like diesel emissions, that are both a climate change inducing pollutant and deadly for residents, are not necessarily reduced at the locations that suffer from the highest pollution levels. There are no guaranteed emissions reductions in the places that need it most such as EJ communities already overburdened with pollution.

TCI’s proposed cap and trade framework will also lead to an increase in fuel prices that represent a regressive tax on low and moderate-income households. These increases will be an additional burden for those communities that are already suffering economic hardships and living with the greatest pollution burden. It is also true that the communities who are the least responsible for transportation emissions are often the ones who benefit insufficiently from climate mitigation policies that are carbon-centric and that focus primarily on investments in electric cars. Subsidizing Teslas for the middle and upper class on the backs of poor, working class and Of Color communities while they choke on deadly diesel is not only unfair, it lacks a truly transformative vision of what our transportation sector could be .

TCI: Is it a Tax?
According to Investopedia here, a tax is defined as:

Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity—whether local, regional or national—in order to finance government activities. In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business's goods.

For a more legal treatment of this subject, see the section below "Is it Legal?"

The governor of New Hampshire certainly thinks so, as he withdrew his state from TCI, as reported in the Boston Herald here.

“I will not force Granite Staters to pay more for their gas just to subsidize other states’ crumbling infrastructure,” Sununu said. “New Hampshire is already taking substantial steps to curb our carbon emissions, and this initiative, if enacted, would institute a new gas tax by up to 17 cents per gallon while only achieving minimal results. This program is a financial boondoggle and the people of New Hampshire will never support it.”

And here's what the Rhode Island Democratic Speaker of the House, Nicholas Mattiello said in the Providence Journal on Dec. 18, 2019:

High on the list of proposed tax increases the speaker says Rhode Island should avoid is a regional gas tax to fight climate change.
“I think my constituents pay enough gas tax,” Mattiello said. “People’s budgets are stressed. They rely on their cars to go to work and support their families, recreate with their families and friends.”

On Tuesday the Transportation Climate Initiative, a 12-state partnership working on a regional charge on carbon-burning fuels, released a framework that would raise prices at the pump anywhere from 5 cents to 17 cents per gallon. The revenue would be invested in mass transit or clean transportation technology.  Mattiello cited the fact that Rhode Island’s 35-cent-per-gallon, indexed-to-inflation gas tax is already one of the higher rates in New England as a reason not to charge drivers more. By comparison, Massachusetts’ tax is 24 cents per gallon.

“Let’s put it in perspective: We in Rhode Island have one of the higher gas taxes in the country. We should not form a partnership with a state that doesn’t have one of the highest gas taxes. Their constituents can afford it,” Mattiello said. “Ours cannot.”

Even labor unions have come out against TCI.  Vermont's AFL-CIO said in a statement in January 2020 (article here):

“This is a class issue for us,” President of the Vermont AFL-CIO David Van Deusen told the Herald. “This is a regressive funding move and the Vermont AFL-CIO is against more regressive funding for social or environmental programs. We don’t need workers paying more to get to their job sites.”

The union is urging the Vermont Legislature to vote against the Transportation Climate Initiative, a multistate compact that would implement a gas fee to reduce carbon emissions, and Gov. Phil Scott to veto it if it should pass.

Likewise, in his State of the State address, Vermont Governor Phil Scott said:

“I hear from Vermonters across the state, like those traveling long distances for work out of necessity, not choice, and others, like our seniors living on fixed incomes, who struggle to fill their gas tanks and heat their homes,” Scott said. “I simply cannot support proposals that will make things more expensive for them.”

Maine's governor is the most recent (Jan 14) skeptic of TCI.  As reported by msn :

Gov. Janet Mills is the latest New England governor to signal reservations about the Transportation and Climate Initiative, the regional effort led by Gov. Charlie Baker’s administration to curb greenhouse gas emissions.  In a statement reported Monday night by The Boston Globe, the Maine Democrat’s office said that “the challenges of climate and transportation issues for rural states like Maine are unique, and the state will be appropriately cautious when considering these issues.”

For the legal argument of why this is a tax and not a fee, see "Is it Legal?" below. 

The chart to the left shows how some claim a cap-and-trade system is different from a tax since it shows that under a tax, you're charged based on your emissions whatever they are, while under cap and trade, you can achieve a low emissions level so that you don't have to pay anything at all.  But this is not the case.  Under cap and trade, the cap is always decreasing, so at some point in the future, zero emissions will be allowed and so every affected party will have to be charged for ever more expensive offsetting permits, no matter how little you emit.  So yes, at some point, every industry under cap and trade will be forced to pay.  And even under a pure carbon tax scheme, the tax doesn't have to be imposed on the first ton of carbon emissions.  You can have tax-free emissions just as under a cap-and-trade system as shown in the chart, similar to income taxes where the initial amounts of income are not taxed or are taxed at a lower rate.

Another big difference between California's cap-and-trade system and TCI is that California taxes industrial and utility emitters while TCI taxes diesel and gasoline sellers.  A utility, specifically, can be a low emitter by switching to renewable power sources such as wind or solar and so don't have to buy the offsetting permits.  But how does a gasoline retailer switch?  There's no way.  The only way to pay less tax is to sell less product.  And the only way to pay no tax is to sell no gasoline - i.e. go out of business.  There is no renewable fuel at this time that a gasoline dealer can sell so it doesn't have to pay the tax.  Thus it will pay ever increasing taxes as the cap lowers and fewer permits are allowed. 

As noted above, California permits are selling at about $17 per metric ton.  If we do the conversion math, this would amount to a 15.12 cents per gallon tax on gasoline.  In the case of Connecticut, a relatively small state, about 1.5 billion gallons of gasoline are sold annually, which even at the 15.12 cent rate, would mean some $234 million of tax revenue for the state, an amount Connecticut would love to have.  Now no one is going to stop buying gasoline because of a 15 cent/gallon tax.  So carbon emissions won't be affected and the state just gets to keep hundreds of millions of dollars more.  The real objective of the state is to make people stop buying fuel by making the tax so painful that they can no longer afford it.

Supporters of TCI note that the maximum estimated increase would be within the historic variations in the cost of gas, as well as average price differences between states.  But if that's the only impact of TCI, then it won't change consumer behavior to move away from fossil fuels and towards electric vehicles.  So the more interesting question is how high do gas prices have to be before people stop buying gas.  Historically, Norway is the country with the highest gasoline prices in the world.  According to this site here, Norway has recently been eclipsed by Holland for this dubious honor, but still its gas price is  $7.68 per gallon!!  (Hong Kong is also shown on the chart, but it's no longer a country)  It's no wonder that Norway also has the highest percentage of electric vehicles on the road, about 15% (full electric and hybrids).  But it's not just the price of gasoline.  Other incentives for electric car owners with a value of $8,200 per year include tax credits, no tolls, and free parking for electric vehicles (EVs) among others.

So looking at Connecticut again where the average price of gasoline is $2.66 per gallon per AAA, to get to $7.00 per gallon would require a gas tax of $4.34 per gallon which, with concomitant aggressive incentives like Norway's, would only result in 15% of the cars in the state being electric. With 1.4 million cars on the road in Connecticut, this amounts to about 210,000 electric vehicles, which falls short of the state's 300,000 target by 2030. 

So if you hear TCI starting at a 15-17 cents per gallon gas tax, think again.  They ultimately need a $4-plus gas tax, and aggressive incentives, and still they fall short of their 2030 goal. The next section describes how a state like Connecticut gets to its goal of 300,000 EVs by 2030, and eventually 80% overall lower carbon emissions in the transportation sector.

TCI: Social Engineering
If you look closely at California's 2030 Vision infographic to the left, you'll see the following of what they're looking forward to:

  - High-density, transit-oriented housing
  - Walkable and bikable communities
  - Onroad oil demand reduced by half

Now as mentioned above, using Norway's model, a $4/gall gas tax plus $8,000 annual incentives only results in 15% of all cars being electric vehicles, while the objective is to reduce onroad oil demand by half or more.  So how do we get there?

The answer lies with TCI's statement here:

Smart growth promotes compact mixed-use development patterns that support biking, walking and transit use while preserving and protecting natural resources and improving the quality of life of residents living in cities, towns and villages of all sizes.

Encourage land use practices that include all modes of transportation – cars, buses, trains, bikes and our own two feet - that build communities around existing and planned transit, reduce automobile dependence and traffic congestion, incorporate complete streets design, minimize the amount of land devoted to roads and impervious pavement, and support development of housing options that address the needs of residents of all ages and incomes.

The problem for TCI planners is that a state with mostly suburban and rural areas such as Connecticut is heavily transportation dependent, which means lots of private cars.  If we were to reduce the suburbs (towns and villages notwithstanding where we suspect the wealthy will still get to drive around in their Teslas while everyone else gets mass transit), and pack people into "high-density" cities, we wouldn't need so many cars.  People would walk or bike to work and take mass transit.  This is the social engineering aspect of TCI and it comes with a political benefit as well, since cities vote almost exclusively Democratic, while suburbs and rural areas trend Republican.  Of course if you're a Democrat, you may consider this a good thing.  So TCI planner realize that high gas taxes and incentives are not enough to move to an all-electric economy.  You need to move people out of the suburbs and into the cities as well, which could result in dense, dystopian Bladerunner-like cities as shown to the left.

TCI: Is it Legal?

TCI May Violate the Commerce Clause of the United States Constitution
One of the purposes of TCI is to have allowance costs, in the form of a tax, passed along to consumers of gasoline and diesel -- i.e., to the public -- in the form of higher prices. This involves a complex, multi-state taxing and regulatory authority that establishes policies and procedures to set the tax rate, its collection and distribution to the states. This tax occurs even when petroleum product moves across state lines, or across international borders.  This tax is distinct from a fee.  Although the states may delegate to administrative agencies the power to set and to collect licensing and regulatory fees, see American Ass’n of Bioanalysts v. Axelrod, 484 N.Y.S.2d 288, 290-91 (3d Dept. 1985), the revenues created by TCI are not in the nature of fees. The test for whether revenue collected by an administrative agency constitutes a fee or a tax is to compare the costs of administration with the revenue received.  That these agencies may generally be authorized in their charters to implement environmental programs does not change the fact that, through TCI implementation, they are raising revenues for other programs, such as energy efficiency and clean energy technology. Where “the sums collected through a licensing or regulatory measure exceed the cost of administration, then it can be deemed a revenue act [i.e., a tax] regardless of its label.” Mobil Oil Corp. v. Town of Huntington, 380 N.Y.S.2d 466, 474. 
 
In fact, in any state that participates in the TCI compact and that auctions most or all of the allowances allocated to that state, the state’s share of the auction revenue can be expected to exceed substantially the program’s administrative costs in that state. That is, in fact, one of the main functions of an auction -- to raise revenues that can be used to meet the state’s desire for funds to advance various policy goals, such as promoting renewable or low-carbon energy sources and other means of energy generation and use or other as-yet-undefined goals.  Such a multi-state taxing scheme using a cap-and-trade system may violate the Commerce Clause of the Constitution.  The Commerce Clause describes an enumerated power listed in the United States Constitution (Article I, Section 8, Clause 3) which states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."  In creating a multi-state taxing system, the TCI, the states are infringing on the powers of Congress and federal government to regulate and tax across state lines. 
 
TCI May Violate the Compact Clause of the United States Constitution.
TCI would run afoul of the Compact Clause of the United States Constitution, which provides that “No State shall, without the Consent of Congress, . . . enter into any Agreement or Compact with another State, or with a foreign Power. . . .” U.S. CONST. art. I, § 10, cl. 3. TCI is a multi-state agreement -- created without congressional approval -- by which participating states obligate themselves to meet a set of common rules and shared limitations and compliance requirements. Because TCI encroaches upon federal supremacy, it constitutes an unconstitutional multi-state compact
 
The Test for a Compact Clause Violation
Historically, courts have identified three categories of interstate compacts that may be subject to the Compact Clause’s limitations: (1) compacts to resolve state boundary disputes; (2) compacts to institutionalize one-time interstate projects, such as building a bridge; and (3) compacts to create ongoing administrative agencies and regulatory programs addressing interstate (or potentially international) issues. TCI falls clearly within the third category. Under the Supreme Court’s interpretation of the Compact Clause, not all interstate agreements require congressional approval. Virginia v. Tennessee, 148 U.S. 503, 517-21 (1893).
 
Rather, the Court has held that the Compact Clause applies only to “the formation of any combination tending to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States.” Id. at 519. Congressional approval is required where an interstate agreement will result in “the increase of the political power or influence of the States affected, and thus encroach . . . upon the full and free exercise of Federal authority.” Id. at 520; see also U.S. Steel Corp. v. Multistate Tax Comm’n, 434 U.S. 452, 479 n.33 (1978) (holding that relevant test for Compact Clause violation is whether a multi-state agreement presents “a threat of encroachment or interference [with the just supremacy of the United States] through enhanced state power. . . .”); id. at 475; New York v. Trans World Airlines, Inc., 728 F. Supp. 162, 183 (S.D.N.Y. 1990) (“[T]he Compact Clause applies only where the challenged interstate agreement embraces actions a state could not take acting alone.”). One way a compact could enhance state power would be to allow two or more states to obtain joint power over interstate commerce that neither could have gained individually. U.S. Steel, 434 U.S. at 474-75.
 
Significantly, to show “encroachment” on federal supremacy, the Compact Clause does not require a court to find that state action is fully preempted by federal law. “Encroachment” under the Compact Clause instead occurs in the presence of merely potential impacts on federal supremacy. This means that the Compact Clause does not require that federal and state laws conflict, as required in the preemption context, but rather that the Clause protects federal supremacy from the potential for such conflicts in the future. U.S. Steel, 434 U.S. at 472 (The “pertinent inquiry is one of potential, rather than actual, impact upon federal supremacy.”). TCI encroaches, potentially or otherwise Congress’s exclusive right to regulate and tax across state lines.